Many tax arrangements carry a risk for taxpayers because the tax authorities can review the facts at any time, reach a different conclusion – and then retroactively amend all tax assessments for previous years. This usually leads – and often quite suddenly – to substantial back payments or to protracted and equally costly proceedings with tax authorities and the courts. By using the tool of binding information This will enable you to protect yourself to a large extent in cases of tax-related uncertainty.
If you wish to obtain the necessary legal certainty in advance in complex cases, you may submit an application to the relevant tax office for a binding ruling (Section 89(2) of the German Fiscal Code (AO)). The granting of a binding ruling is subject to two conditions: 1) the circumstances must not yet have arisen, and 2) they must be precisely defined. Only then does a binding ruling have binding effect on the tax authorities.
What your application for binding information must include:
• the applicant’s full details, i.e. name; for natural persons, their place of residence or habitual abode; for legal entities, associations of persons and estates, their registered office or place of management; and, where applicable, their tax number
• a comprehensive and self-contained account of the facts, which must not yet have materialised at the time the application is submitted
• a statement setting out the applicant’s specific tax interest,
• a detailed explanation of the legal issue, including a thorough justification of the applicant’s own legal position,
• the formulation of specific legal questions,
• a statement that, with regard to the facts submitted for assessment, no other tax authority (tax office or Federal Central Tax Office) referred to in section 89(2), second and third sentences, of the Tax Code has
a request for binding information was made
• a declaration that all the information required for the provision of the information and for the assessment has been provided and is true.
If the binding ruling relates to a set of facts that is attributable to several persons for tax purposes, the ruling may only be requested jointly by all parties concerned.
How binding is „binding“?
A binding ruling issued by the tax authorities is only binding for tax purposes if the facts that subsequently materialise do not differ, or differ only insignificantly, from the facts on which the ruling was based. However, the binding effect ceases from the date on which the legal provisions,
on which the information is based may be revoked or amended. Furthermore, binding information may be revoked or amended with effect for the future if it transpires that the information provided was incorrect.
Conclusion
There is no such thing as 100 per cent certainty that lasts forever – however, it can be maximised by providing a detailed account of the facts in the application and by keeping abreast of developments in tax law.